Three really important words in business are cash, KISS, risk, and interestingly, are often the most underrated in importance and value. A few perspectives of how these three words are so important to all of us in business, particularly in these turbulent times, follows.
A business without CASH, is not a sustainable business. Whilst you may be able to start a business with little cash, or use other methods to start up and operate in the short term, the success of these businesses is limited.
It is also not a wise operating philosophy to use other people’s money in the form of free credit, government grants and/or “cheap” finance. Unless you are really successful, you will soon run out of these sources of cash, or your creditor’s patience for slow or non-payment of acquired debts will evaporate. The fact is, very few businesses last for very long unless they quickly become cashflow and profit positive.
If your business does not survive and you have a bad reputation, this will haunt you well into the future because there are few secrets these days.
The fact is that many businesses did not survive in the past without cash, or even the earliest days after the announcement of COVID, is proof that a business without cash does not survive for long. Further proof will be soon be evident as many zombie businesses start becoming insolvent once their creditors start demands for payment, or the ATO commences actions for payment of tax, superannuation etc.
KISS as many of us know, stands for “keep it simple stupid”. In business, this is not just a good saying, it is often a guide on how to make your business more efficient and profitable.
For example, dealing with bad, difficult and slow payers, may appear valid at first even if the projected upfront gross profit appears beneficial. In the long term and in reality, these customer types are a drain on the financial, efficiency and emotional viability of your business.
It is these customers, which should never be allowed to buy on B2B credit terms and should only be asked to pay in cash with a good discount. If they decide to go elsewhere, so be it. You have just encouraged them to go to your competitors and complicate their businesses with the same problems and inefficiencies they originally inflicted on your business.
Another way of keeping things simple is to have very clear-cut and easily managed incentive schemes to increase sales. In a previous business where I worked, the salespeople would often create complicated buying scenarios. The problem was that the people raising invoices could not keep up with the changes and often raised invoices with incorrect discounts. In turn, the customers would raise credit claims because of these errors.
Risk is always a double-edged sword. Most businesspeople think of risk as a negative, which is then ignored. On the other hand, risk viewed positively, is always a guide to improving business efficiency, cashflow and profits. For example, if you have been slow in following up unpaid invoices, you may find your customer is no longer in business, or has become insolvent and insolvency administrators are in charge. In either case, your invoices will not be paid.
There are also many businesses currently in financial difficulties due to collapsing sales, lack of finance, zombie business customers and ATO demands for unpaid liabilities. It is therefore essential where a business is selling on B2B credit, to be aware that these customers with financial creditability issues might soon become insolvent. If that happens, any recent payments received from these customers might also become a preferential payment.
To avoid these situations, businesses need to have other sales strategies other than just selling on B2B credit. The importance of such strategies is that they are not just sales strategies, they are also another test of the customer’s or potential customer’s financial viability.
Three really important words in business are cash, KISS, risk, and interestingly, are often the most underrated in importance and value. A few perspectives of how these three words are so important to all of us in business have been put forward. It is suggested that a positive and realistic perspective on how each of these words is going to affect your business would be useful, particularly in these turbulent and uncertain times.